There is a whole lot of oversight going on these days. OFHEO [Office of Housing Enterprise Oversight] and others are very concerned about the ability of the GSEs to avoid getting into trouble.
I wonder why there was so little oversight before the credit crunch? Was it an…oversight (sorry)?
It’s pretty scary to think that Fannie and Freddie (and HUD) are seen as the saviors of the housing market in the creation of a jumbo conforming mortgage product, expanded portfolio size and a housing market condition that continues to weaken (default rates rise as prices decline). They are already vulnerable.
>Although few are predicting an imminent need for a bailout just yet, credit rating agency Standard & Poor’s recently placed an estimated price tag on this worst case scenario — $420 billion to $1.1 trillion of taxpayer’s money.
Fannie Mae and Freddie Mac are getting a lot more attention from the Treasury Department these days.
>Treasury officials have stepped up efforts to strengthen the regulation of Fannie Mae and Freddie Mac, the two largest buyers of home mortgages, pressing key senators to break a legislative stalemate that has lasted for years.
In OFHEOs Report to Congress, it summarizes the concerns quite efficiently:
>$5.0 trillion in guaranteed mortgage-backed securities outstanding and mortgage investments. Their market share of total mortgage originations grew from 37.4 percent in 2006 to 75.6 percent by the fourth quarter of 2007. There is increasing pressure for Fannie Mae and Freddie Mac to do even more to support the mortgage market, which is problematic in absence of GSE reform legislation to strengthen the regulatory process.
As evidenced by the lack of market enthusiasm for the new jumbo conforming mortgage product that was supposed to help the housing market (allowing some homeowners to refi their way out of trouble – which can’t be good for FNMA’s portfolio). And OFHEO is just wrapping up actions against former FNMA executives who manipulated earnings to enhance their bonus income.
It doesn’t seem reasonable to place all of our hopes for a solution on the GSEs.
Consider oversight in the classroom: How students see their classroom today.
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Are there any viable alternatives to beefing up the GSEs at this point? A lot of what has been going on sucks, and I don’t think anybody knew what to look for in oversight. But, whatever, people need housing and in our system it takes mortgage money to get ’em into it.
That means finding sources of money and taking risks in lending it, unless you know of a barter system that will work for housing.